Why Lupin, Aurobindo Pharma, Cipla Are Top Stock Picks Of Analysts

Analysts expect a positive and benign U.S. pricing environment seen in Q1 to continue in Q2.

<div class="paragraphs"><p>(Source: Unsplash)</p></div>
(Source: Unsplash)

Indian pharma companies with product approvals in the U.S. could see revenue growth, according to reports by brokerages Yes Securities and Axis Securities.

Some of the pharmaceutical companies have garnered eight to nine "good" approvals amid other "regular" ones from the U.S. Food and Drug Administration between June and August this year, said a report by Yes Securities (India) Ltd.

Q1 FY24 had seen the benefit of a generally positive and benign U.S. pricing environment and the brokerage expects a similar scenario to prevail in the second quarter for Indian pharma companies in the U.S.

"Overall, companies have netted about eight to nine good approvals, mostly shared between Alembic Pharmaceuticals Ltd., Aurobindo Pharma Ltd. and Zydus Lifesciences Ltd. Alkem Laboratories Ltd. and Ajanta Pharma Ltd. do have a decent approval each in the last few months, which should support their U.S. growth quarter-on-quarter."

Some players like Torrent Pharmaceuticals Ltd. continue to struggle due to lack of any major approvals on the back of facility issues. While Alembic Pharmaceuticals Ltd. has at best one decent ophthalmic approval in three months, despite large research and development programmes in the past few years and a good quantity of approvals, the report said.

The brokerage continues to prefer Ajanta Pharma, Indoco Remedies Ltd. and has a cautious stance on Alembic Pharma, given the lack of quality approvals in injectables.

Axis Securities Ltd. also has top picks in the pharma space related to U.S. product launch pipelines. It includes Cipla Ltd., Lupin Ltd. and Aurobindo.

Yes Securities' Outlook

Key Product Approval Highlights:

The report highlighted good product approvals received by Indian pharma companies, which may be potential revenue drivers "over and above the swings in existing market shares" for Q2 FY24.

Aurobindo Pharma: Two approvals that stand out are an injectable opportunity and an ophthalmic over-the-counter, where Aurobindo is the first generic. Brokerage reckons U.S. business will get support from these launches.

Alembic Pharma: Company faces lack of quality approvals in Q2 FY24. Barring an ophthalmic approval, Alembic has not managed any decent approval and Q2 U.S. performance might depend wholly on volume gains in existing products.

Alkem Labs, Ajanta Pharma: Each got an approval for Topiramate; Ajanta has a settlement, and it would be a decent opportunity though the timeline is not known.

Lupin: Apart from Spiriva, Vitamin B12 spray approval should support U.S. business.

Zydus Lifesciences: Chantix and Plerixafor injection should support Q2.

Natco Pharma: A niche oncology first generic approval (gLonsurf) should aid U.S. business for Natco Pharma Ltd.

The benefit of a benign U.S. pricing environment is expected to continue in Q2, ensuring that the "relative lack of approvals across several players may be hidden as volumes inch up, coupled with select shortage opportunity, especially in oncology injections". Such an outcome could augur well for companies like Alembic "where meaningful new approvals would have otherwise been expected to play a key role in driving U.S. business".

Top Picks And Cautious Stance

Ajanta Pharma: The brokerage continues to prefer Ajanta based on a few triggers such as:

  • Faster growth in branded business in Asia and Africa.

  • 10-11% growth in domestic business.

  • U.S. turnaround after two tough years (ex-forex and flu-related sales in Q3 FY23).

Indoco Remedies: The company, it said, continues on its journey of healthy growth on a small base in the U.S., new launches adding to domestic business and attractive valuation.

Alembic Pharma: Company is not getting support from large approvals that can propel its U.S. business onto the next leg of growth. It continues to rely on benign nature of market to eke out volume expansion.

Dr Reddy's Laboratories: Within the large names, the brokerage sticks to its neutral stance on Dr Reddy's Laboratories Ltd., as lack of growth in ex-Revlimid U.S. base might be offset by continued Revlimid-led traction.

Axis Securities' Outlook 

Lupin, Cipla, and Aurobindo Pharma are the brokerage's top picks in the sector, according to a recent report. For these three companies, too, Axis indicated a strong product pipeline in the U.S. along with other factors.

Lupin: The company’s business is to be supported by new launches in the U.S. market like Darunavir, Cynocobalamin, Diazepem Gel, Vereniciline, Bromfenac, etc., excluding gSpirva.

Cipla: The company reported the highest U.S. business ever in Q1, mainly due to better execution in the base business and a higher-than-expected revenue contribution from gRevlimid. New products launches—gAdvair and gAbraxane—could lead to additional revenue in FY25, despite current regulatory challenges, Axis said. gSynbicort is expected to launch in Q4 FY24, and the company plans to launch three more peptides next year ($30-50 million).

Aurobindo Pharma: The growth drivers for the company are as follows:

  • Generic injectibles, Eugia ($411 million sales), which could grow in low double digits, due to value-added approval.

  • The launch of Trastzumab biosimilars in Q2 FY24E.

  • The launch of Pen–G injectible in Q1 FY25E.

  • One-time opportunity in gRevlimid in the next two to three years.